Stop selling tax liens against community charities

By Paula Z. Segal and Frank Lang

Oct 17, 2018 | 2:00 PM

Buyers can do whatever they want to these properties, which include hundreds of old churches and other community institutions many of which are active, including demolish them. (Getty Images/iStockphoto)

Too many community charities are having their property sold out from under them — as a result of actions by the New York City Department of Finance. Created in 1996, the city lien sale takes tax, water and sewer debt owed to the City and converts it into liens, which subsequently are sold to a private trust managed by a bank. The trust can collect 18% interest (compounded daily) and initiate collection actions and foreclosure proceedings in court, which end in the auction of property to the highest bidder.

Buyers can do whatever they want to these properties, which include hundreds of old churches and other community institutions many of which are active, including demolish them. After foreclosure auction, property can be used for any purpose allowed by zoning including market-rate housing or commercial business enterprises.

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All of this happens because the city sells taxes that the charities don’t even owe as collectible debt since community charities are exempt from property tax under state law.

You’re probably wondering how charities get stuck in this position. Our community leaders and stewards of these charities wonder the same thing. A significant number of the staff and volunteers that run the local nonprofit organizations are not even aware of their property tax exemption revocations until foreclosure has been initiated before a court — or even completed via a trial at which no one appears to represent the charity. These charities very often have not received notice until the damage is done.

In 2016, New York City sold a lien worth $203,000 on the Devoe Street Baptist Church, a Williamsburg, Brooklyn church built in 1940. Since its construction, the church had been recognized as tax-exempt by New York State and the federal Internal Revenue Service; New York City also had granted them an exemption from property taxes since 1940.

When the city introduced an annual renewal requirement to its property tax exemption system in 2012, it never held a public hearing or notified church leadership. The city removed the exemption and massive debt accumulated quickly.

In 2017, the City was planning to sell another lien and placed the church on the lien sale list. Church leadership contacted St Nicks Alliance for help, who joined together with the Community Development Project, Council Member Antonio Reynoso’s office and the Office of the Taxpayer Advocate to guide the leaders to file a new application for exemption. The property was finally removed from the 2017 and the lien sold in 2016 was discharged.

When properties are foreclosed, it’s obviously bad for the charitable organizations that are forced from their properties — including synagogues, mosques community centers and churched like Devoe Baptist. But it’s also terrible for the people and neighborhoods that depend on these charities.

When a church is foreclosed, torn down and turned into luxury condos, the community not only loses a place to worship — neighbors lose valuable supports like soup kitchens, after-school programs, assistance for the elderly and a safe community gathering space. Lien sales and subsequent foreclosures also add to the hastening gentrification of New York. Replacing a local charitable use with market-rate housing or commercial uses contributes to rising rents, which in turn fuels displacement. Is this our vision of the “Fairest Big City in America”?

Twenty-five New York City Council members and the public advocate have signed on to a bill that would exempt charities from lien sales. Stopping these sales will help protect the charities that serve our communities and also slow the sweeping gentrification that is pricing New Yorkers out of our neighborhoods. Let’s get this bill passed before the Department of Finance starts preparing for another season of tax lien sales that will drive more charities away.

Segal is an attorney with the Equitable Neighborhoods Practice of the Community Development Project and Frank Lang is director of housing for St. Nicks Alliance.